Thing is, Bararsani v. Coldwell Banker, the ginormous California case that everyone has been watching has yet to be decided, and one rightly wonders what the impact (if any) of Monell v. Boston Pads might be to that case. There is no controlling authority, since SJC is the state supreme court, not the Federal one, but there may be persuasive authority to the judge in Bararsani. I touched on that in my previous post.

Now one of the more interesting subplots of the Bararsani case — and all real estate independent contractor cases — is the involvement of the labor unions. One piece of scuttlebutt I heard from the folks at CAR (California Assoc. of REALTORS) is that CAR approached the legislature to make it clear that real estate agents were not to be considered as employees… and the legislature refused, because the unions didn’t want that. (What that says about REALTOR political power is a subject for another post, another day.)

So… I thought it might be interesting to try to understand what the argument of the labor unions are. Thankfully, the unions — by way of an amicus brief — made its arguments clear to the court in Monell. I understand this is probably of zero interest to those readers who aren’t law junkies or aren’t involved in strategic planning for the Bararsani litigation, but… what the hell. I think it’s interesting.

Notorious ROB — where I read law briefs so you don’t have to. 🙂

The Main Arguments

First, here’s the amicus brief:

Now, this is my reading and others may differ completely; such is the nature of law. And obviously, this isn’t legal advice, but legal analysis for fun by a blogger. Consult your own attorney, etc. etc. yadda yadda.

Misclassification Is A Big Deal

This isn’t so much an argument as much as it is a sort of setting the table. The union spends some time talking about why misclassification of employees as independent contractors is such a big deal. I thought it worth pointing out, as we’ll return to this later on.

On page 4 of the brief, the writer quotes the Attorney General of Massachusetts:

Entities that misclassify individuals are in many cases committing insurance fraud and deprive individuals of the many protections and benefits, both public and private, that employees enjoy. Misclassified individuals are often left without unemployment insurance and workers’ compensation benefits. In addition, misclassified individuals do not have access to employer-provided health care and may be paid reduced wages or cash as wage payments. [Emphasis mine]

MELA and the union then quotes from Governor Deval Patrick’s Executive Order setting up a task force to deal with employee misclassification:

[T]he practice of employee misclassification: (1) exploits vulnerable workers and deprives them of.. legal benefits and protections; (2) gives unlawful businesses an unfair competitive advantage over lawful businesses by illegally ￼driving down violators’ taxes, wages, and other overhead costs; (3) defrauds the government of substantial tax revenues; and (4) harms consumers who suffer at the hands of unlicensed businesses that fail to maintain minimum levels of skills and knowledge. [Emphasis mine]

Like I said, we’ll come back to this but note the enormous government interest here: unemployment insurance, worker’s compensation, health care, and taxes. And taxes. Have I mentioned taxes?

General Independent Contractor Law Applies to Everyone

The primary argument of the unions is that the MA legislature intended its general independent contractor law to apply to everybody, real estate agents included, and that employees are due various protections under the law that independent contractors do not have:

Narrowing the scope of the Independent Contractor Statute to exclude categories of workers – without any implicit, much less explicit, statutory exclusion (as the Defendants-Appellees and their amici advocate) – strains credulity. More importantly, such an interpretation could compromise the vital protections guaranteed under the Statute, not only to real estate agents, but to any category of workers that an employer elected to misclassify for the purpose of denying the payment of compensation due under the Commonwealth’s laws.

Knowing that the SJC disagreed with the unions, and indeed did narrow the scope of the Independent Contractor Statute, we can just look at the arguments they made.

Basically, the unions argue that the plain language of the statute (S. 148-149) and the purpose of the statute both support the idea that it needs to be applied and interpreted broadly. The idea is that MA wanted to ensure that workers have various protections, and that employers don’t misclassify employees as independent contractors to avoid having to pay legally required wages, benefits, and taxes. And some of the language from folks like the Attorney General of MA supports that claim:

Notably, the Attorney General made clear in its Advisory that the statute is not limited to the public construction industry, explaining: “The 2004 amendment was part of legislation making broad changes to.the laws governing the public construction industry. However, the Law, including the 2004 amendment, applies more broadly to a wide range of industries.” Id. (emphasis added). The Attorney General recognizes no exemption from the statute for the real estate industry – a significant point, given that the Attorney General’s interpretation of S.148B is entitled to substantial deference. [Emphasis mine]

You know, that’s pretty strong. You know what else is damned strong?

The union brief points out that the one time where the legislature tried to carve out an exemption for real estate agents, that language was vetoed by Gov. Patrick:

I am disapproving section 8 because it seeks to exempt real estate sales persons and brokers from the independent contractor laws, G.L. c. 149, ~ 148B, recently enacted to reduce employee misclassification and abuse of workers’ status. The section would allow real estate sales persons and brokers to rely on written agreements to avoid the classification rules for independent contractors. The Secretary of Labor and Workforce Development and I are working to address employee misclassification in our underground economy task force, and we are concerned that this section is inconsistent with that objective. (Page 16)[Emphasis mine]

I’m actually of the opinion now that the SJC made a mistake by ruling that real estate agents are governed by real estate license law, not by the general independent contractor law. Lucky for the brokerages and the Associations, but man… the legislative history and legislative intent seems pretty clear to me from this.

Industry Practice Is Irrelevant

Next, the unions argue that the fact that the real estate industry has traditionally classified agents as independent contractors for over a hundred years is irrelevant. In fact, they argue that it is precisely those industries that have such practices that should be especially targeted by the general independent contractor law:

All industries are affected when a new statute governing the treatment of workers is enacted. If those industries have a custom of violating the law, then naturally they will be more greatly affected. However, that is no reason not to enforce the statute against them. To the contrary, to effectuate the public policy underlying the Independent Contractor Statute — “to protect employees from being deprived of the benefits enjoyed by employees through their misclassification as independent contractors,” Somers, 454 Mass. at 592 — courts must apply the statute to industries that have traditionally violated it.

Again, that’s pretty strong. If the legislature did indeed intend for real estate agents to be exempt from the general independent contractor statute, then it should have carved out an exception. It did not, and the one time that it tried, the Governor vetoed that legislation.

Broker Oversight Doesn’t Mean Independent Contractor Status

The unions also point out that the real estate licensing law (at least in MA) that talks about real estate brokers providing oversight to agents does not create independent contractor status:

In other words, a broker may classify a real estate agent as either an employee or an independent contractor, so long as the agent meets the applicable tests for those classifications, “but” the agent must still be subject to the statutorily required supervision, regardless of how the agent is classified.

…

However, ~ 87RR does not address the issue of whether a real estate agent is an independent contractor or an employee for purposes of the payment of wages – despite also acknowledging that real estate agents can be “employee[s] or independent contractor[s].” M.G.L. c. 112, ~ 87RR. Accordingly, the question of whether a real estate agent is an employee for wage purposes.is determined in the same way as it. is for any other employee, namely, by applying the test established by ~ 148B. Because ~ 87RR does not address the question of whether a real estate agent is an employee for the purposes of the payment of wages, it does not conflict with ~ 148B and it does not create an exemption to that statute.

I touched on this in my last post, but I simply can’t see how some of the things that were alleged by the plaintiffs in this case apply to brokerage oversight. Dress codes, being required to work floor time, being required to buy a cell phone and answer it in a certain way, etc. have nothing to do with the legal duties of agency. They have everything to do with marketing and branding and promotion, but none of that are concerns of any real estate licensing laws anywhere.

Tax Law and Labor Law Are Different

To me, this may be the most important argument advanced by the unions. The basic argument is that people may be treated as independent contractors under tax law, but as employees under other laws. Lengthy quote:

The various statutes that protect employees often have their own definition, or test, that establishes whether a worker is an “employee.” For example, the definition of employee is different under the wage laws, workers’ compensation laws, and unemployment laws. Similarly, the test for determining whether someone is an employee for federal income tax purposes is different than the test for determining whether someone is an employee under the federal Fair Labor Standards Act….

When a category of workers is specifically excluded from coverage by one of these statutes, the Legislature has made the exemption explicit Specifically, when it has exempted real estate agents paid on a commission-only basis from coverage under the workers’ compensation laws and the unemployment compensation laws, it has done so explicitly.

…

Notably, real estate agents are not specifically exempt from coverage under the most important federal law related to the payment of wages, the FLSA. Real estate agents, or salespersons, are covered by the FLSA except where, based upon the specific facts related to the work performed, they are found to fit under one of the broader exemptions established by that law for an outside salesperson or independent contractor. [Emphasis mine]

Again, the SJC of Massachusetts did not agree with the union position in Monell. But this is a really powerful argument. I wouldn’t ignore it.

The Concern Moving Forward: Bararsani v. Coldwell Banker

Taken together, I find far more to be concerned about with Monell v. Boston Pads than even before. The case in Massachusetts turned out as the real estate industry wanted it to, but Bararsani is still going on in California.

As I pointed out in my previous post, California laws that deal with real estate agents employee status directly are about unemployment insurance and workers’ compensation:

3. CA Court applies those laws but still finds that the agent is an employee. Critically, s.650 and s.13000-13019 talk about brokerages not having to pay Unemployment Insurance for a real estate agent. The plaintiffs in Bararsani are wanting reimbursement for expenses, among other things. It’s not clear that laws governing Unemployment Insurance are on point for a judge trying to figure out whether a real estate agent spent a bunch of money because his brokerage required him to do so.

Obviously, not being a California labor lawyer, I could be dead wrong, and there are indeed statutes somewhere in the California Code that directly says “labor laws don’t apply to real estate agents”. I kinda doubt it, though. (But if you’re a California labor lawyer, and you DO know the answer, please feel free to comment or let me know directly.)

Take that together with the arguments that the unions made in Monell. Then add on the fact that the issue of “misclassification” is one in which the government has a massive and decidedly biased interest. Employer-provided health care and all sorts of taxes are but two. (I’m sort of ignoring the whole “protect the workers” angle since that may be the front-and-center purpose, but the real action is how much dough the government can collect, directly or indirectly.)

Monell is not binding on California; it’s a state law case. But it is persuasive. So, taking the rather powerful arguments advanced by the unions together with the ending dicta from the Monell court — where it more or less pleaded for a new lawsuit — I don’t know that CA will follow MA in declaring that its general independent contractor laws don’t apply to real estate agents.

In my personal opinion, the SJC of MA made a mistake with this ruling, but it did so out of good policy reasons: not disrupting the real estate industry to hell and back because the legislature screwed the pooch when drafting the laws. The solution for MA is cleaner legislation, one that either specifically exempts real estate agents, if that’s what the legislature wants to do, or removes any doubt about general law applying to real estate. The same can be said for California.

At this point, relying on the judge in California (of all places) to take the side of real estate brokerages might be a touch too hopeful for me. If having real estate agents exempted from the general labor laws of California is a real goal of brokerages and Associations, they’re likely going to have to get to work on the legislature directly.

Anyhow, who knows what the future will bring. The California courts may end up agreeing with the SJC of Massachusetts. But right now, after going through the union arguments, I’m not particularly encouraged. Make plans accordingly.

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

2 Comments

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Rob… the “ginormous California case” of Bararsani v. Coldwell Banker has been settled. CB did not prevail. http://www.law360.com/articles/746843?utm_source=rss&utm_medium=rss&utm_campaign=articles_search. Short version: Coldwell To Pay $4.5M To Settle Real Estate Reps’ Suit”. In the article from Law360: “While we have agreed to settle a class action involving mostly former and some current real estate agents affiliated with our company, Coldwell Banker Residential Brokerage makes no admission of wrongdoing or liability, and is not obligated to change its business structures.” the company states”. Wonder if this will be precedent setting for other similar lawsuits now on the books.